STABILITY OF THE HUNGARIAN ECONOMY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79R01141A001300030002-1
• Release Decision: RIPPUB
• Original Classification: U
• Document Page Count: 54
• Document Creation Date: December 23, 2016
• Document Release Date: May 29, 2013
• Sequence Number: 2
• Publication Date: December 1, 1958
• Content Type: REPORT

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ECONOMIC INTELLIGENCE REPORT
N? 3
STABILITY OF THE HUNGARIAN ECONOMY
CIA/RR 160
December 1958
CENTRAL INTELLIGENCE AGENCY
OFFICE OF RESEARCH AND REPORTS
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ECONOMIC INTELLIGENCE REPORT
STABILITY OF THE HUNGARIAN ECONOMY
CIA/RR 160
CENTRAL INTELLIGENCE AGENCY
Office of Research and Reports
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CONTENDS
Page
Summary and Conclusions 1
I. Introduction 3
II. History of Economic Policy and Its Results (1950-57) . 4
A. Allocation of Resources Within. Industry 7
B. Inefficiency of investment . . , ' 8
C. Changeability of Economic Policy 9
D. Results of Economic Policy 10
1. Growth of National Income 10
2. Foreign Trade and the Availability of Raw
Materials 14
III. Impact of the 1956 Revolt 16
IV. Recent Developments in the Hungarian Economy (1957-58) 17
A.
Policy Shift to Increased Consumption and Its
Implementation
17
1.
Increases in the People's Income and Availability
of Consumer Goods
17
2.
Recovery of Production in 1957
19
3.
Retail Trade
20
U.
Housing
22
5.
Assistance from the Soviet Bloc
22
B.
Foreign Trade 'Since the Revolt
24'
1.
Changed Pattern
24
2.
Balance of Trade
25
3.
Source of Raw Materials and Change in ?the-Com-?
modity Composition of Trade
27
4.
Loans from the Soviet .Bloc , ; ..
27,
C.
Capital Investment
30
1.
Rate
30
2.
Distribution
30
3.
Maintenance
35
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Page
V. Future Economic Problems 35
A. Prevention of Inflation and. Achievement of a
Balanced Budget
B. Achievement of a Balance of Trade in 1958
C. Requirements for Consumption and Export in 1958 .
D. Hungarian Ability to Produce an Export Surplus
During the Decade of the 1960's
35
38
38
39
E. Conflict Between Current Economic Policy and Long-
Term Communist Policy 45
Tables
1. Percentage Distribution of the 'Hungarian National In-
come, 1949-55 , 5
2. Hungarian National Income, by Sector of Origin,
1949-55
3. Hnngarian National Income, 1954-58 14
U. Comparison of Selected Indexes of Gross Production in
the Hungarian Economy, Before and After the October
1956 Revolt 20
11
5. Hungarian Output of Selected Industrial Materials,
Before and After the October 1956 Revolt 21
6. New and Reconstructed Dwellings Built in Hungary,
1950-57, and Origin of Financing, 1955, 1957, and
1958-60 Plan 23
7. Hungarian Trade with the Soviet Bloc and with Non-Bloc
'Countries, 1955-57 26
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Page
8. Percentage Distribution of Hungarian Trade, by Class of
Product, 1955-57 28
9. Long-Term Loans to Hungary by Other Soviet Bloc Coun-
tries, 1956 and. 1957 - 29
10. Gross Capital Investment in Hungary, 1953-58 31
11. Percentage Distribution of Hungarian State Capital In-
1 vedtment, by Sector, Selected Periods, 1950-60 . . . 33
12. Hungarian Foreign Trade and Adjustment Between Home and
Foreign Trade Prices, 1949 and 1954-56 ...... 37
41
42
13. Hungarian Production of Selected Basic Commodities,
1955, 1957, and 1960 Plan
14. Hungarian Foreign Trade in Principal Export Products,
1955-57
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STABILITY OF THE HUNGARIAN ECONOMY*
Summary and Conclusions
Hungary is not promoting a type of development that would take
full advantage of its resources, Rather, Hungary is committed to
a program of promoting heavy industry and exporting its products
first to the. Soviet Bloc, then to countries outside the Bloc. Hun-
gary now has a vested interest in heavy industry which demands
further expenditure in order to utilize fully the plant created by
past investment and to reduce the unit cost of operation. For the
long run, also, Hungary is committed to socialize agriculture, and
this commitment prevents full and effective assistance to the
peasant owners, who now hold nearly three-fourths of the arable land
compared with about two-thirds before the revolt. It is unlikely,
therefore, that Hungary, under existing conditions, will succeed in
making the most of its potential. Instead, it probably will continue
for the next decade to trade on unfavorable terms, struggling to pay
Tor its raw materials, to discharge its foreign debt, and to make
additional capital investment without being able to improve its stand-
ard of living to any substantial degree. As long as Communist pre-
conceptions and ideas prevail and the USSR continues to dominate
HungarY's economic policy, no radical change in economic policy ap-
pears to be probable.
Hungarian economic policy since the revolt of October 1956 has
tended to favor: the consumer more than previously, in that the real
Incomes of wage earners and farmers have been increased. Moreover,
the condition of the peasants has been improved by the abolition of
compulsory deliVeries of agricultural products. These gains were
made possible largely through assidtance from the USSR and other
countries of the Soviet Bloc after the revolt. The regime has de-
clared its intention of retaining the gains made in the standard of
living by maintaining the relatively high real income of 1957. It
also expects to continue free market purchases and the contract system
for agricultural procurement and promises to use inducement rather
than force on the independent peasant farmers to increase membership
In cooperative farms. In particular, it intends to make the coopera-
tives examples. of reductive and profitable farming, which they were
not in the past. .In spite of these policy decisions, however, indica-
tions are that the state has already found it difficult to maintain
* The estimates and conclusions in this report represent the best
judgment of this Office as of 1 October 1958.
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. the 1957 level of personal consumption and that vai-ious measures to
reduce the income of both wage earners and peasants have been taken.
New loans to Hungary from other members of the Soviet Bloc, for
use in 1958-60, are so far limited to an investment credit of 44o
million rubles from the USSR, which seems to be entirely earmarked
for the purchase of capital equipment. In 1958 and succeeding years,
therefore, Hungary is forced to rely more heavily on its own output
for internal needs and must produce a sufficient surplus over inter-
nal requirements to balance foreign trade and provide for the most
essential capital investment. During the decade of the 1960's, the
additional financial burden of repaying loans made to Hungary by other
members of the Soviet Bloc will require a much greater export surplus
than in the past.
The Hungarian planners acknowledge that grave mistakes in judg-
ment were responsible, to a large extent, for the declining rate of
growth of the economy which developed by 1953 and which resulted in
the change of policy in that year. They point to the too-rapid pace
of industrialization as the cause of an unbalanced economy, lagging
agriculture, and the low standard of living. -By implication, there'
has been some recognition of a more fundamental error of planning
which directed the bulk of the capital investment toward industries
for which Hungary had no raw material resources at the exPense of
agriculture. At present, Hungary has obtained a steadier flow'of
raw materials than in previous years and has started to produce
domestically some of the needed materials previously imported. These
materials include straw cellulose for paper stock, synthetic yarn for
textile manufacture, and a low-grade metallurgical coke to be used
with imported coke in blast furnaces.
Better arrangements for import of materials do not necessarily
make production profitable. In order to produce economically, several
changes would be necessary, such as the following: (1) modernization,
of machinery and equipment and improved industrial technology;
(2) concentration of industrial labor on the advanced processing in-
dustries which use much labor and little'material, in order better
to utilize Hungary's fairly abundant and highly skilled labor force;
(3) mass production of a smaller number of specialized export prod
nets in order to reduce costs and improve the regularity of supply
for export; (4) greater investment in the food industries in which
Hungary has both long experience? and natural superiority; and
(5) priority attention to agriculture, in order both to improve the
food supply of the population and to furnish material for the food
industries as well as for export.
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I. Introduction.
In the years of Communist rule preceding the revolt of 1956, the
Hungarian national income (Communist concept) failed to show a stesd
rate of growth in spite of the high level of capital investment. The
official index of national income, based on constant prices, dipped in
1952, 1954, and 1956. The trend of growth after 1950 was at a decreasing
rate because of the failure of agricultural production to advance in
accordance with national and export requirements and because of obstruc-
tions to industrial production caused principally by increasing scarcity
of industrial materials and electric power. The change of economic
policy in 1953 calling for greater attention to the supply of basic in-
dustrial and agricultural materials did not bring an immediate improve-
ment and may even have been partly responsible for the sharp setback
in 1954. After 1954, however) national income increased until late
1956,'when it was affected by the revolt. With greater attention to
the development of agriculture, fuel, and power, a'degree of recovery
in agricultural and industrial output occurred, and there was a con-
sequent improvement in the crucial balance of foreign trade in 1955 and
the first three quarters of 1956. Agricultural recovery was also
greatly aided by good weather in 1955, which helped to make it the best
crop year since World War II. This recovery of a balanced trade posi-
tion was hardly completed, however, before the revolt of October 1956
halted practically all production for the remainder of the year. In
1956, Hungary 'S trade debt with non-Communist countries had ceased to
rise, but loans from other members of the Soviet Bloc were necessary
to pay off the debt already incurred. Productivity of labor was still
low and much of the production equipment obsolete, thus making it diffi-
cult to produce Hungarian goods of competitive quality for export in
exchange for hard currency in order to obtain needed raw materials and
consumer goods.
The revolt reduced the total output for 1956 and necessitated a
downward revision of the industrial production goal for 1957 to a point
6.6 percent below that of 1955. This goal was sufficiently modest so
that it was overfulfilled. The Hungarian economy in the first half of
1957 was producing at about the same average level as that reached in
1953. By the fourth quarter of 1957, however, industrial production,
according to official figures, was 17 percent above the average for
1955, br.wling the average output for the year slightly above the 1955
level. Thus industrial production, as a whole, had returned to or
even surpassed the level of production existing in 1956 before the
revolt. Recovery in light industry and chemicals was rapid, but pro-
duction in the extractive and, machine building industries did not
reach .pre-revolt levels by the year's end. Recovery was aided by a
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good agricultural crop in 1957. The regime was beset by a host of
immediate problems, which were aggravated by the revolt of October
1956, and was confronted by major problems which were all present and
serious even before the uprising: These problems -- reduced indus-
trial growth, low productivity of labor', backward technology, un-
satisfactory consumption levels, foreign trade deficits, and shortages
of raw materials -- stem directly from the economic policies which the
regime pursued under the direction of the USSR from 1949 to mid-1953
and from a failure to correct many of its planning and performance
errors in the period after mid-1953, even though the errors had been
partially recognized.
II. History of Economic Policy and Its Results (1950-57).
During the period 6f the First Five Year Plan (1950-54) the Communist
Party of Hungary directed an all-out effort to attain industrial growth
by devoting approximately one-fourth of the national income to capital
investment. After the original plan had been tried out for .1 year, the
policymakers of the Communist Party decided that Hungarian goals for
production and investment had been set too low and could be raised to
a much higher level. A revised plan was initiated in 1951 which raised
the 5-year investment goal by two-thirds and more than doubled the goals
for industrial production -- that of heavy industry, in particular, was
raised from 104 percent to 280 percent of the 1949 output. Between 1950
and 1953, while the national income of Hungary rose by nearly 30 per-
cent, "accumulation" (net investment plus the increase in stocks), under
state control, increased by 50 percent. This heavy investment created
an expansion of machine industry and other manufacturing which far ex-
ceeded the materials and energy base of the economy. By early 1953,
industrial production difficulties and the stagnation of agriculture
had made it evident, even to the Soviet Bloc leadership, that a read-
justment of goals and reallocation of resources were needed.
During the period when Hungarian planners were pushing rapid in-
dustrialization -- 1950-53 -- the index of per capita consumption did
not show any significant growth and stood about the 'same in 1953 as in
1950. 2/ The percentage of national income allocated to consumption
(private and public) was reduced from 77 percent in 1949 to 68 percent
in 1953 (see Table 1*), and the allocation to personal consumption
dropped from 66 percent. to 46 percent in the same period.
A second revision of the First Five Year Plan, referred to as the
"new course," was given the Party endorsement in June of 1953. The
over-all investment goal was reduced, and various large projects were
postponed to permit a greater allocation of total resources to
* Table 1 follows on p. 5.
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Table 1
Percentage Distribution of the. Hungarian National Income
1949-55
Percent of Total National Income
Based
on 1949 Prices
Based
on 1954 Prices
1949
1950
1951 1952 1953
1954
1955 12/
1954
1955
Consumption
Personal
66.o
58.1
51.8-
50.7
46.2
57.9
56,9
70.1
68.9
Public sj
11.3
13.0
13.i
20.6
21.8
17.6
13.9
12.0
9.5
Total
77.a
71.1
Ea
La
88.0.
75.4
70.8
82.1
78.4
Accumulation
Fixed capital fund
12.8
12.8
1618
20.5
19.8
16.8
16.5
11.1
10.9
Working capital fund
8.2
14.0
17.2
7.8
11.7
8.1
10.4
6.7
8.6
Total
21.0
26.8
28.4
31
24.9
26.9
17.8
19.5
Net foreign payments g
1.7
2.1
.34.o
1.1
0.3
0.5
-0.3
2.3
Negligible
2.0
Total national income
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
a. Percentages calculated from official figures on national income consumption in millions of
forints at fixed prices. 3/ Totals are derived from unrounded data and may not agre?e with the
sum of their rounded components.
b. Percentage distribution for 1955 in 1949 prices has been derived from the distributions
given in 1954 prices.
c. Including consumption by the armed forces and by the social, health, educational, cultural,
and adbinistrative functions of the government.
d. Including balance of commodity trade, transfers,.and uncompensated exports.
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consumption. The percentage of national income allocated to total con-
sumption rose from 68 in 1953 to 75 in 1954. Likewise, a higher per-
centage of the investment resources was allocated to public welfare and
to the development of industrial raw materials and electric energy) to
projects that would assist agriculture, and to community projects and
housing. The reallocation of resources was not accomplished Without con-
siderable friction, however, and the immediate result appeared to be a
setback in the output of heavy Industry without achieving a compensating
Increase. in agricultural production. Total investment was reduced in
1954, but only a moderate increase was attained in housing and consumer
goods on the market, and. the balance of foreign trade was badly im-
paired by the necessity of importing more food and materials.
By 1955 the more liberal economic policy of the "new course" yielded
to a partial return of such Stalinist policies as strict labor disci-
pline, rigid enforcement of agricultural compulsory deliveries, and
renewed pressure on private farmers to join the agricultural producer
cooperatives. Nevertheless) the increased attention to agricultural
assistance and techniques, the development of raw materials sources,
and provision of an increased supply of consumer goods for the market
together with lower prices, continued throughout 1925. The Second Five
Year Plan, which was to start in 1956, called for a higher rate of in-
vestment than that of the previous 2 years, but somewhat lower than the
peak year 1953, and allowed for a somewhat higher living standard than
in earlier years. Official policy sought to avoid a pace of industrial-
ization that would outrun the supply of materials and energy.
Under the more moderate pace of industrial gorwth in 1955 and 1956,
investment was devoted principally to modernization and extension of
existing industrial facilities and to the development of state and co-
operative forms of agriculture. The availability of farm machinery,
chemical fertilizers, and insecticides was much increased; livestock
improvement and fodder crops received special attention; and a long
irrigation canal was built in the Tisza River region. Hungary was
showing some signs of improving its industrial and agricultural situa-
tion and of bettering its foreign trade position when the revolt of
October 1956 gave a further setback to the economy.
This uprising, with its political threat to the Communist regime,
brought a second and more radical shift of emphasis toward increased
consumer income and a greater availability of consumer goods, the
reduction of capital investment, the 'incurring of considerable foreign
debt, and a considerable modification of organizational structure and
immediate goals. Hungary's economic problems, recently increased by
the uprising, require the practice of national frugality -- practices
which in many respects conflict with the new emphasis on consumer wel-
fare and the incentives offered for increased productivity. Increased
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taxes and heavy exports are required in order to reestablish Hungary's
budgetary and external dredit position. Such a belt-tightening policy
is in conflict with that of the more liberal consumer income policy
adopted to induce better production. Soviet assistance permitted Hungary
to provide both raw materials for industry and more plentiful consumer
goods in 1957, but long-term solutions of its economic problems will be
more difficult to effect.
A. Allocation of Resources Within Industry.
Hungary has pursued a developmental policy that has been uneco-
nomic in the light of its endowment of resources. The emphasis placed
on heavy industry during the First Five Year Plan period was designed
to push the machine building industry, which would find its principal
market in the USSR. This branch of the economy was given the largest
percentage of industrial investment in the original plan. The revised
plan also provided for tremendous increases in the investment allocation
for the metallurgical industry. Expansion of the iron and steel indus-
try, in particular, was embodied in the construction of the large in-
tegrated plant at Dunapentele (formerly called Sztalinvaros) with a
planned annual capacity of 1 million tons of steel. This combine was
to include all stages of the industry from coking ovens and ore dressing
through steel rolling mills. Electric power and its raw material, coal,
became increasingly important to the country as industrial development
proceeded and were given higher priority after mid-1953, in preparation
for the Second Five Year Plan (1955-59). In this second 5-year period
the plan was to. build the chemicals industry in much. the same way as
ferrous metallurgy had been expanded before, with the objective of
furnishing raw materials for synthetic fiber, plastics) dyes) chemical
fertilizers, and explosives.
Al]. of this development was based on a very slender resources
base, for Hungary possesses only limited reserves of low-grade.iron ore
and an inferior grade of coal) which is used for industrial purposes
other than metallurgical coke and is almost the sole source of energy
for the electric poWer industry. The coal mined is of deteriorating
quality, and the reserves are not extensive.
Not only has Hungary placed nearly all of its investment capital
in heavy industry but also the planners have insisted on integrated
production) particularly in the metallurgical industry, starting with
imported materials in the raw state instead of emphasizing fabrication
of imported semifinished materials. Thus Hungary has incurred heavy
transport costs on imported ores and fuels and high capital costs for
investment in primary processing although capital is scarce and labor
plentiful. The cost of producing pig iron in Hungary, principally with
the use of imported ore and coke, has been demonstrated by Hungarian
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economists to-be much greater than the cost of purchasing the pig iron
in the USSR. IS The continued availability of pig iron from this source
in sufficient quantity, however, might be open to some question. It is
probable that rolled steel products might be the most economical stage
for Hungary to begin its machine industry. Nevertheless, the investment
in iron and steel plant is now so great that it can hardly be abandoned
without great loss, so that the planners still hope to lower production
costs by building further integrated facilities such as steel rolling
mills. Hungarian planners claim that, although 70 percent of the in-
vestment has already been made, only one-third of the capacity of the
steel combine at Dunapentele is being used, and the remaining 30 percent
of the total investment is needed to convert the project to a profitable
enterprise.
This costly and unprofitable industrial development has been
partly at the expense of agriculture, which was forced to provide much
of the state funds for investment, in the form of low returns and heavy
taxes but was systematically neglected in the allocation of investment
funds. The meager investment funds which the state afforded to agri-
culture benefited only about one-third of the cultivated land, depriving
the privately owned land of needed capital. Simultaneously, socializa-
tion of land holding and obligatory deliveries to thestate of agricul-
tural products at low prices, reduced the morale and incentives of the'
peasants.
The relative advantage of Hungary lies in. its good agricultural
land and its plentiful labor supply. It is now recognized that concen-
tration on intensive agriculture and the food-processing industry could
be advantageous in that it would furnish the type of export goods that
Western nations would buy and offer the means of procuring hard-currency
exchange with which to purchase raw and semifinished materials outside
the Soviet Bloc countries. Hungarian plans for the future also include
development of labor-intensive industries and specialized products with
mass production methods which will reduce costs of production. Although
Hungarian official statements indicate belated recognition of how to
improve the allocation of resources, the political slant of Communist
planning prevents an all-out effort to increase agricultural production
and improve the technology and materials supply of Hungary's specialized
industries.
B. Inefficiency of Investment.
One of the principal reasons for the low production and poor
foreign trade position of Hungary, even after the First Five Year Plan
had been completed, is the gross inefficiency with which investment
resources have been expended. Too great a proportion of investment
has been spent on plant construction while machinery in many existing
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plants has been allowed to become obsolescent. Moreover, the backlog
of uncompleted industrial investment, instead of dropping, has increased
and reached a record total -- almost five times that of the year 1950.
This means that many investments already started must be dropped. There
has been great pressure in various ministries to start new projects in-
stead of concentrating on those already begun, and it has been character-
istic of the investment policy that unfinished projects were accumulated,
some awaiting import of machinery and others with unfinished construc-
tion. The use of poor material and untested machinery also has proved
wasteful. One glaring example of such poor investment is the Borsod
Chemical Combine, opened in December 1955, which was so badly planned
and executed that it remained inoperative long. after October 1956, when
one of the Hungarian-made compressors exploded.
Use of plant capacity has likewise been inefficient, for much
capacity has been left unused for want of fuel or materials shipments
or for lack .of parts to be furnished by other factories. Uncoordinated
production, an uneven distribution of work caused by a rush to fulfill
quarterly plans, neglect of quality in order to increase quantity, and
output ill suited to the.market because of uncoordinated plans have
characterized industrial operation. A high percentage of rejects tes-
tifies to the poor quality of the products. Because of poor quality
and outmoded design, Hungarian products cannot compete on the Western
markets and usually must be sold below the going world market price.
The USSR has 'customarily inspected all goods at source and accepts
only prime quality products for its imports.
For the future, the administration' of Hungary hopes to correct
some of the difficulties by reorganizing industry to emphasize a number
of specialties that would be mass-produced for greater economy. Although
a start has been made toward suchchanges in the structure of industry,
the greater emphasis, for the present, is on the completion of the large
projects begun at an earlier period and on the production of basic mar
terials and power.
C. Changeability of Economic Policy.
Hungarian economic policy, like that of the other Satellites,
has followed the general line laid down by the USSR for countries of
the Bloc. Hungary implemented these policies with extraordinary vigor
in 1951 and again in 1953. During the past few years the "new course"
policy has been subject to the conflicting Party counsels of those who
wished to pursue,a hard line or a soft line toward the alternate uses
of income for investment on the one hand or toward improvement of standard
of living on the other. In 1953-54, capital investment received.a much-
reduced allotment in the economic plan, and it became necessary to
halt some projects such as construction of the Dunapentele iron and
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steel combine. In 1955-56, more investment capital was allocated for
completing certain units of this project and a large chemical works was
planned on the Tisza River, but by 1957 events made it necessary to set
aside plans for both projects temporarily. This backing and filling on
investment policy resulted in an obvious waste of materials and labor
resources.
D. Results of Economic Policy.
1. Growth of National Income.
The official Hungarian index of national income purports to
measure changes in the value of net material product. Income from ser-
vices not directly connected with material production is not included
in the Communist concept of national income.
, The very substantial gains of the first 2 years of the First
Five Year Plan were realized before the scarcity of basic materials and
power had become acute. These gains may be somewhat exaggerated by the
index, however, because of the possible underestimation of the handi-
craft product in 1949. The output of individuals in that period before
they were absorbed into state or cooperative industry could hardly have
been completely reported, as it was after they were included in the
socialized sector. Actual declines were registered by the index of
national income in 1952, 1954, and 1956 (see Tables 2 and 3.*) The
decline in the index for 1952 was largely accounted for by the crop
failure of that year. The highest point of national income up to that
time was reached in 1953 in spite of a weakening of productive forces
in the econothy, partly on account of heavy investment in construction
and improved crop yields, which was very, apparent by that year. The
seriousness of the situation was given official recognition in the
change of economic policy in June 1953. In 1954, no sector of the
economy made a significant growth. Heavy industrial output declined,.
and agricultural yields were poor in some respects. The interim year
1955 was a better one than 1954. Although there was some degree of
return to former policies favoring heavy industry in 1955, the more
liberal consumer policies and more enlightened agricultural policies
of the "new course" period were retained.
The gains of the year 1955 and the first 9 months of 1956
were checked by the October revolt. Even if the revolt had not occurred,
however, continuation of the economic progress of these years was ren-
dered uncertain by an increasing tendency of the regime. to return to
the same economic policies that had brought a stalemate in production,
such as increasing investment in heavy industry and using economic
* Tables 2 and 3 follow on pp. 11 and 14, respectively.
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Table 2
Hungarian National Income a
by Sector of Origin 12/
1949-55
Sector of Origin
1949 Prices
1954 Prices
1949
1950
1951
1952
1953
3954
1955 S/
1954
1955
Million Forints
Industry
18,801
23,521
27,672
32,729
36,410
35,378
39,400
46,696
52,074
Building industry
2,267
3,136
4,272
4,613
4,916
3,836
4,320
4,929
5,543
Agriculture
9,884
11,050
13,149
8,207
11,391
10,846
12,500
24,290
28,059
Transportation
1,504
1,967
2,542
3,263
4,0c4
3,895
3,830
3,441
3,383
Trade g '
4,876
5,524
' 5,340
3,215
2,117
2,462
1,500
5,926
3,874
Internal trade
5,400
6,263
6,520
5,481
5,476
6,o65
5,620
13,379
12,396
Foreign trade di
-524
-740
-1,180
-2,266
-3,359
-3,602
-4,120
-7,454
-8,522
Other material production
373
290
245
190
229
242
212
-242
212
Total 2/
37,704
45,487
53,220
52,217
59,066
26,659
61,800
85,524
93,145
* Footnotes for Table 2 follow on p. 13.
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Table 2
Hungarian National Income 2/
by Sector of 'Origin12/
1949-55
(Continued)
Sector of Origin
1949 Prices 1954 Prices
1949 1950 1951 1952 1953 3954 1955 2/ 1954 1955
Indexes of Growth (1949 100) a/
. Industry 100 125 147 174 194 188 210
Building industry 100 138 188 204 217 169 - 190
Agriculture 100. 112 133 83 115 110 127,,
Transportation 100 131 169 217 .266 259 254
Total income 100 121 141 138 157 150 164
Percentage Distribution
?
Industry 49.9 51.7 52.0 62.7 61.6 62.4 63.8 54.6
Building industry 6.0 6.9 8.0 8.8 8.3 6.8 7.0 5.8
Agriculture . 26.2 24.3 24.7 15.7 19.3 19.1 20.3 28.4
Transportation 4.0 4.3 4.8 6.2 6.8 6.9 6.2 4.0
Trade li 12.9 12.1 10.0 6,2 3.6 4.3 2.4 6.9
Other material production 1.0 0.6 0.5 0.4 o.4 0.4 0.3 0.3
55.9
6.o
30.1
3.6
4.2
0.2
Total s/ ? 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
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Table 2
Hungarian National Income Et/
by Sector of Origin II/
1949-55
(Continued)
a. National income is computed according to the Communist concept. Unlike the Western concept of
national income, the Communist definition excludes personal services not directly connected with
the production of goods, the most important of which'are the services of government administrative
employees and defense personnel, professional service; domestic service, and passenger transporta-
tion, but includes indirect taxes, chief of which is the turnover tax,
b. Percentages calculated from official figures ?on production of national income by sector of
origin in millions of forints at fixed prices. 2/
c. Values for 1955 in,1949 prices have been derived. from 1955 values in 1954 prices and have been
rounded to three significant digits:
d. Values for total trade are net and represent the difference each year between the positive
value of internal trade and the negative value of foreign trade. Because this difference has
little aignificance.as'an index of trade, no growth index is shown forthe trade sector of the
economy. The negative value for foreign trade is the result of the adjustment between the foreign
trade prices of imports and exports (on commercial account -- that is, excluding trade financed by
credit, transfers,.and,other noncommercial transactions) and their domestic prices. Hungarian
domestic prices consistently overvalue export goods, which consist largely of manufacture?, and
undervalue import goods, largely raw Materials, in comparison With the world market prices. ,
e. Totals are derived from unrounded data and may not agree with the sum of the rounded com-
ponents.
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pressures to force the peasants Into the collectives. The national in-
come in 1956 dropped about 11 percent, or 10 billion forints, below that
of 1955, and its recovery in 1957 was about 10 percent above that of
1956 (see Table 3) and approximately 6 percent below that planned for
1956.
Table 3
Hungarian National Income
1954-58
Year
Billion Forints
(1954 Constant Prices)
Percentage Change
from Previous Year
1954
1955
1956
1957 (Estimated)
1958 (Plan)
85.5t/1
93.1 2/
83.1 hi
91.4 2/
953 gj
8.9
-10.7
10.0
4.3
a.
b. Based on the fulfillment report, which states that national income
in 1956 was 10 billion forints, or about 11 percent, lower than in
1955. I/
c. An increase of 10 percent above 1956 was estimated by the UN,
Department of Economic and Social Affairs. .8_/
d. Arpad Kiss, President of the National Planning Office, speaking
about the economic plan for 1958, said that national income, on the
hasis of a 7.3-percent increase of industrial and a 4.6-percent in-
crease of agricultural production, will be 4.3 percent greater than
in 1957. 9/ This total is computed from the estimated national in-
come for 1957.
2. Foreign Trade and the Availability of Raw Materials.
Hungary is dependent on foreign trade for most of its raw
materials for both heavy and light industries. Even the more proSperous
small countries, such as Austria, Denmark, Holland, Switzerland, and
Finland, can attain economic production only by industrial specialization
and foreign trade. This is even more true of Hungary, which ranks as one
of the poorer countries in natural resources. Hungary's economic policy,
however, has been developed along lines which require a large use of min-
erals, fuels, and electric energy -- fields in which its natural endowment
is poor.
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At the same time, all other Satellite countries of the Soviet
Bloc pursued the same policy. They were in competition with each other
both for scarce materials and for markets, especially those of the Free
World. In spite of the efforts of the Council for Mutual Economic Assis-
tance (CEMA), they failed collectively to develop enough raw materials
to support their industries. Hungary, with somewhat fewer natural re-
sources than some of the other European Satellites, has been unable to
command an adequate supply of imported raw materials from the Soviet
Bloc, even though 65 to 75 percent of its exports in 1949-55 were to
Bloc, countries. Moreover, it has run a chronic deficit in trade with
the Free World. It has been forced to sell its goods below world prices
at times, juggle accounts, run up a heavy debt, and cut itself off from
needed imports to save its credit standing.
Hungary's political orientation toward the Soviet Bloc has
determined its choices in the development of domestic industry, and the
present structure of foreign trade favors this orientation, as evidenced
by the fact that a major part of the products of the machine industry
are exported and that 90 percent of the machine export goes to the
socialist countries. Because its exPorta are largely to the USSR and
other Satellite countries, Hungary must depend on these sources to a
large extent for its raw materials. These sources have proved to be.
Irregular and unsatisfactory in various wars -- for example, a poor
quality of iron ore from Krivoy Rog and an always insufficient supply
of nonferrous Metals, ferroalloys, and certain other essential ma-
terials.
Under normal conditions, Hungary's principal raw material
imports are iron ore, metallurgical coke, nonferrous metals, pyrites,
lumber, rubber, cotton fiber, and leather. Coal and petroleum have
bulked larger in the imports of 1957 because of the breakdown of do-
mestic production. Wheat and fodder grains have also been imported
to renew depleted stocks. Although most of these scarce materials have
been supplied by the USSR and other countries of the Bloc, it is more
advantageous and in some cases necessary to import some commodities from
other sources. Traditionally Hungary exported its food products to
many countries of western Europe. The principal export line acceptable
to the West is food products -- including livestock, meat products,
fruits, vegetables, wine, and seeds. Lacking a surplus of food prod-
ucts in 1953 and several years thereafter, Hungary has tried to substi-'
tute textiles, electrical goods,,and machinery. Fully installed manu-
facturing plants and construction projects also have been offered to
underdeveloped countries. Such contracts are made chiefly with coun-
tries, of Asia and the Near East and. have frequently been made below
world prices, thus indicating that Hungary/a high-cost producer, is
losing on such sales. A few well-established products are sold to South
American countries, but for the most part machinery is salable only
within the Soviet Bloc.
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In 1953 and frequently thereafter, Hungary has been forced
to depend on the West for imports of bread grains as well as certain
essential materials like cotton, leather, and wood products and has had
to arrange for short-term credits to obtain these items. In 1956 the
Hungarian export trade was interrupted by the revolt, and payment of
these trade debts was temporarily impossible. Before the revolt these
Western credits were reported to total $250 million (at the official -
exchange rate).
III. Impact of the 1956 Revolt.
Hungary has officially estimated the damage from all forms of loss
incurred on account of the October 1956 revolt to be 22 billion forints.
This sum would equal 42 percent of the national budget (estimated to be
51.9 billion forints), or about one-fourth of the estimated national in-
come for 1 year. This estimate included the value by which production
was diminished and by which State stockpiles were diminished as well as
direct damage to buildings, transportation, industrial plant, and other
areas. Direct damage to industrial plants was minor, except for con-
siderable damage to motive-power rolling stock and lines of the state
railroad (MAV). Most of the damage was suffered by housing and other
buildings in Budapest and some other cities at the scenes of street
fighting.
Assuming that the rate of investment planned for 1956 could have
been maintained if the revolt had not occurred, the loss of domestic
investment in 1956-58 is estimated to be about 7 billion forints. In
addition, in order to meet the emergency created by the revolt, Hungary
had to borrow from the other Bloc countries.
The present industrial plant is expected to produce in 1958 at the
level planned for 1956. There appears to have been no immediate loss
to the population in the form of scarcities of food and consumer items,
but-public works and housing may have suffered, to some extent, from
alower rate of construction between 1958 and 1960 than might otherwise
have been maintained.
Hungary was threatened with inflation after the revolt because of
its increased consumer purchasing power coupled with decreased production.
Its first task was to restore industrial production by obtaining the
necessary electric power, fuels, and materials and by inducing a recal-
citrant working force to produce. It was necessary to obtain credits
for goods to be purchased in the Bloc and hard currency for immediate
settlement of Western accounts. Imports on credit from the USSR and
other countries of the Soviet Bloc served to get production started
quite rapidly in 1957. During 1957, Hungary lived on borrowed capital,
importing much more than it exported, attempting to appease its people
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by increasing their scale of living, and at the same time operating on
a lower national income than had been planned for the previous year.
The state budget for 1957 was balanced only with the assistance of
4.3 billion forints (domestic value) in foreign loans from other coun-
tries of the Blot. The decreased value of the national income expected
in 1957, on account of the revolt, made it necessary to increase the
planned percentage for consumption from the 78 percent allocated in 1955
and 82 perdent in 1956 to 95 percent for that purpose in 1957. This
left only 5 percent of national income, in addition to the proceeds of
foreign loans, to be devoted to capital investment, repair of damages,
and renewal of goods stocks in the possession of the state.
Thus the immediate difficulties of the uprising -- reduced productive
capability and increased political necessity for higher consumption
levels -- have been added to the preexisting problems arising from past
developmental policies. These problems will be difficult to solve even
if the Hungarian leaders bestow a less single-minded concentration on
heavy industry and give greater consideration to the encouragement of
agriculture, to the improvement of design and quality in industrial
products, and to modern technology. Although their statements and plans
indicate a recognition of past mistakes, there is no clear sign that
once recbvery has reached the pre-revolt state they will continue to
emphasize these other aspects of the economy. Many old-line Communists
have returned to influential positions. It is quite possible that they
will favor a return to the policy of priority development of heavy in-
dustry. The Three Year Plan (1958-60) announced in June 1958 stated that
further development of industry, and above all, heavy industry, is a
primary aim of the plan.
IV. Recent Developments in the Hungarian Economy (1957-58).
A. Policy Shift to Increased Consumption and Its Implementation.
1. Increases in the People's Income and Availability of Con-
sumer Goods.
After the uprising the Kadar government made a decision to
permit the increase of consumption over the pre-revolt level. This
policy affected farmers and wage earners and was manifest in the cur-
tailment of state investment, the increase of state procurement prices
for farm produce, and the establishment of higher wage rates. Wage
payments, which were to increase 10 percent according to government
decree, got out of hand immediately following the revolt, and wage fund
allocations to industries were exceeded. In the first quarter of 1957
the earnings of workers in state-owned industries were 22 percent higher
than the monthly average for 1955, although worker productiVity was far
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below the pre-revolt level. The total money income of the population
advanced until August, as did the average monthly earnings of industrial
workers, except in June. By May the regime had put some curb on the
rise of wages, and incentive wages were made mandatory on all enter-
prises after the end of August. Total money income for January through
October 1957 was reported to be 16 percent higher than in the .correspond-
ing period of 1956, and the average earnings of industrial workers were
22 percent higher. In 1958 the state further tied work compensation to
production by inaugurating the practice of profit sharing in industry,
in the building industry, and in state agricultural enterprises. The
first-quarter report for 1958 indicated that the more profitable enter-
prises averaged an additional 3 weeks' pay for their workers.
The most significant change in policy made since the revolt
was the endorsement by the Hadar government of the revolutionary decree.
abolishing compulsory surrender of farm produce. Hungary is the only
Satellite country that has completely abolished the system of compulsory
delivery of agricultural crops, although Poland and Rumania have made
significant reductions in the number of crops under the quota system in
the last 2 years. The two problems posed by the change in the procure-
ments system were (a) that of setting up machinery for obtaining a suf-
ficient supply of basic foodstuffs by other than a compulsory surrender
system and (b) that of compensating for the loss in state revenue en-
tailed in the higher procurement prices. Such a change amounted, in
effect, to relinquishing a tax on farm produce which during the period
from 1950 to 1956 had helped to support state industrialization. Hun-
garian officials have boasted that the change was effected without re-
duction of state food stocks and also that the food supply in the cities
had not been so even for years. Food stocks were adequate because of
lower exports of food and significant imports of wheat and fats. Agri-
cultural production in 1957 was higher than in 1956, export of wheat
was negligible, and imports of bread grain were slightly higher than in
1955.
The peasants' real income in 1957 was reported to be 8 to 10
percent higher than in 1956. Because the higher farm prices added con-
siderably to the purchasing power of the farm population, it was neces-
sary to provide consumer goods and farm implements and supplies or other
opportunities for expenditure to absorb the excess purchasing power of
the peasants. It is claimed that considerable investment in farm live-
stock, implements, and buildings took place in 1957, in contrast with
former years when almost no private, and little cooperative, capital was
invested. Prices of farm implements and certain consumer durables were
raised during the year as an anti-inflation measure.
Free market prices of food were lower in 1957, but retail
food prices as a whole were above the previous year's average until
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September. The state procurement prices were fixed at the price level
of the free market before the obligatory delivery system was abolished,
largely because contracts with the producers had been made at this
level. The problem of obtaining an even supply of food products for
urban areas was solved largely through the use of market incentives to
farmers. State food supplies were obtained from these sources: (a) free
purchase, (b) deliveries and sales contracts with cooperative farms and
independent peasants, (c) production of state farms, (d) payment in kind
for state services, (e) imports, and (f) open stocks.
In support of the consumption policy in 1957) the regime
provided a more plentiful supply of consumer goods and food products.
This was accomplished by keeping more of the products of Hungarian in-
dustry for home use and by importing. more consumer goods in addition
to a large quantity of industrial materials. It was possible to follow
this policy, however, only by incurring an unfavorable balance of trade
to the amount of 2 billion devise forints* during 1957. This unfavor-
able balance was covered principally by long-term foreign loans from
the USSR and other countries of the Soviet Bloc and, to a small extent,
by small trade credits from Western countries. In 1958 the foreign
trade deficit is expected to be eliminated by a combination of reduced
imports and increased exports.
Although no increase in the standard of living is planned
for 1958, the regime expects to maintain the present level for both in-
dustrial workers and peasants. The announced policy for 1958 is to
raise total consumption 5 percent above 1957, but, with an increasing
population, this rise amounts to only 2 to 3 percent per capita. 12/
No further assistance for purposes of consumption is expected from
foreign credits.
2. Recovery of Production In 1957.
Recovery of production in 1957, although fairly rapid, was
somewhat uneven, with heavy industry lagging behind the rest until the
last quarter of the year. For the first three quarters of 1957, gross
production of state industry as a whole was 3.percent below the level
of the same period in 1956; heavy industry was 9 percent below 1956,
and light industry and food industry had surpassed the same period
of the year before by 7 percent and 2 percent, respectively (see
Table 4**).
* The devisa, or foreign exchange, forint, is an accounting unit used
in Hungary for recording foreign trade transactions. Values in devisa
forints are obtained by converting ruble or dollar values to forints at
an arbitrary rate of exchange set by the Hungarian government. Values
of imports and exports obtained in this way differ considerably from values
expressed in terms of actual domestic prices (see Table 12, p. 37, below).
** Table 4.follows on p. 20.
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Table 4'
Comparison of Selected Indexes of Gross Production
in the Hungarian Economy
Before and After the October 1956 Revolt 2/
Gross production
? January-September 1957
as Percent
of January-September 1956
1957 as
Percent
of 1956
1957 as
Percent
of 1955
Total state industry
97
111
102
Total heavy industry
91
109
101
Total light industry
107
126
102
Food industry
102
106
101
Number of industrial
workers
101
100
103
Average monthly earnings
of industrial workers
122
120
128
Gross production per
industrial worker
96
111
99
Output for the fourth quarter of 1957 was high., and the year's output of
state industry exceeded that of 1956 by 11 percent and that of 1955 by
2 percent. The most critical shortages in the early months of 1957
occurred in coal and electric poWer, and production in most lines was
curtailed until Coal output returned to normal, about May, after which
it recovered sufficiently to equal the 1955 output for the year. Pro-
duction of oil, .which had been affected by technical difficulties before
the revolt, did not recover even to half of the 1955 output. (see
Table 5*).,
Agricultural crops were unusually good in 1957. Foods were
reported to be more available than previously.
3. Retail Trade.
Retail sales in current prices increased by 38 percent, and
retail stocks by 69 percent, between January and October. For the first
* Table 5 follows on p. 21.
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Table 5
Hungarian Output of Selected Industrial Materials
Before and After the October 1956 Revolt
January-September 1957
. as Percent
Volume Produced ,
(Thousand Metric Tons Et)
Indexes of Production
(1955 . 100)
?
Industrial Material
of January-September 1956
.1955
1956.
1957
1955
1956
1957
Coal Li
85
22,316
20,590
21,197
100
92
95
Electric power bi
88
5,428
5,201
5,449
100
96
100
Steel
-76
1,629
1,425
1,375
100
87
84
Rolled steel products
134
883
792
? 893
100
90
101
Cement
87
1,175
995
989
100
85
84
Crude oil
47
1,601
1,200
672
100
75
42
a. Except for electric power, which is given in million kilowatt-hours.
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three quarters of 1957, retail sales were 113 percent of the same period
in 1956. During this same period; goods valued at 6,052 million forints
more were added to retail and wholesale stocks than during a similar
period in 1956. Including the increase in stocks and in sales, the
state put into the consumer goods sector approximately 9,816 million
forints more in goods than it did in 1956, not allowing for official
and unofficial price increases; which somewhat inflated this figure. 1,3/
4. Housing.
The consumption area Which has been most neglected is that
of housing. The proportion of the total capital investment which was
devoted to housing in 1957 was more than twice as high as in previous
years 1-- 23.5 percent compared with 11.8 percent in 1956, 1)1/ and the
total number of dWellings produced exceeded the number in ani year since
World War II (see Table 6*). It Is' believed that the net gain in dwel-
ling units during 1956-57 was only about half of the reported gross gain
of 74,500 because housing losees through deterioration and destruction
probably were very high Moreover, much of the claimed construction
was not that of new dwellings but was actually restoration or conversion
of older dwellings which had been part of the housing stock at the be-
ginning of 1956. Repairs in the city of Budapest were extensive slid
doubtless accounted for a_large part of the new housing. For Hungary
as a whole, the decline in population after the revolt brought some
quantitative improvement in housing, but this gain was largely offset
by the continued decline in the quality of the available housing.
Any Increase in the state investment funds for housing has
been prevented by the necessity of curtailing the investment total, and
the number of state-built and privately built units planned for the
3 years 1958.'60 averages only about 37,000 a year; although the regime
has admitted the need for More housing than the plan calls for. The
chief reliance for this limited number is placed on private means.
Homeowners were expected to build 63,000 of the 100,000 units -- now
raised to 110,000 --to he built in the 3-year period. Loans have been
offered to individual home builders of up to 75 percent of the cost of
the house to be constructed'.or for the completion of an unfinished one
on a site owned by the applicant. 121
5. Assistance from the Soviet Bloc.
The increased incomes during 1957, coupled with low produc-
tion, would have laid the basis for a severe inflation in.Hungary except
for the large flow of imports from other countries of the Bloc on long-
term credits. These imports included some consumer goods not usually .
* Table 6 follows on p. 23.
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Table 6
New and Reconstructed Dwellings Built in.Hungary
1950-57
and Origin of Financing
1955, 1957, and 1958-60 Plan
Units
Year
Dwellings Built
Total 21
New Dwellings
1950
24,669
N.A.
1951
17,742
13,494
1952
16,683
13,747
1953
16,793
13,272
1954
27,211
23,010
1955
31,526
26,113
1956
25,500 12
N.A.
1957
49,000 h/
N.A.
Origin of Financing
Year
1955 LI/
1957 hi
1958-60
Plan 2/
State-built
Built with state aid
Privately financed
Total
13,604
2,849
15,073
11,526
26,000
-4(3,000
49,000
37,000
i(3,000
100,000
b. 1//
c. Breakdown prorated according to earlier plan for 100,000 instead
of the later plan for 110,000.
imported, but more Important to Hungary were the supplies of industrial
raw materials obtained without compensating exports. This permitted the
retention for home use of consumer goods usually exported as well as
permitting a concentration of resources on the recovery of the light
and food industries.
In 1958 the situation is beginning to change. The large
deficit in foreign trade must be reduced as the foreign credits arranged
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for in 1957 are largely exhausted. The present level of personal con-
sumption must be preserved as a continued inducement to the peasants
and workers to produce. One of the factors facilitating the maintenance
of this level, at least through the greater part of 1958, is the high
volume of consumer goods accumulated during 1957. This stockpile, being
unusually large, may be drawn down in 1958 to supply the population,
thus permitting full resumption of consumer goods exports in 1958. By
1960 the further burden of repaying the long-term debts owed to members
of the Soviet Bloc will demand a considerable increase in exports.
B. Foreign Trade Since the Revolt.
1. Changed Pattern.
Hungarian trade with the Soviet Bloc showed a substantial
ekcess of exports over imports during the 3 years preceding the revolt,
bUt there was a persistent deficit in trade with non-Bloc countries, as
a group, until the first 9 months of 1956. The generally favorable
situation in 1956 was interrupted by the revolt, when the sudden spurt
of imports and decline of exports produced a large deficit in total and
Bloc trade, particularly in the early part of 1957. Non-Bloc trade was
less affected. The deficit for the entire year of 1957 was about 2 bil-
lion devise forints and amounted to one-fourth of the total imports.
In comparison with 1955, the last normal year, imports for
1957 not only increased by 24 percent in total value but also were more
concentrated in source. Imports purchased from other European Satel-
lites, as a group, rose in value by about 40 percent above those of
1956, but those from the USSR more than doubled. Although exports to ?
non-Bloc countries were down very little from the 2 previous years, the
value of imports from non-Bloc trading partners was lower than in 1955.
Total exports were below the level of 1955 by 18 percent. Exports to
other European Satellites were down 20 percent from the level of 1955,
and those to the USSR were 30 percent under the total for 1955. This
change in pattern was indicative of the immediate employment of credits
from the USSR and the other European Satellites to obtain the necessary.
imports.
Hungary apparently did not suffer from the decreased imports
from non-Bloc countries in 1957, because materials from the Bloc more
than made up the difference. A.trade agreement has been concluded with
the USSR for 1958-60 under which the USSR will supply Hungary with such
materials as iron ore, coke, crude oil, rolled steel, ferroalloys, non-
ferrous metals, cottons, sawmill products, motor vehicles, ball-bearins,
and oil drilling and roadmaking equipment in return for the customary
Hungarian exports. A Soviet investment loan of 300 million rubles made
in December 1957 and later raised to 440 million ($110 million at the
official exchange rate) gave Hungary some support for its own rather
meager investment fund for the 3-year period 1958-60.
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Imports of coal, petroleum, and almost all other types of
imported raw materials were higher in 1957 than in previous years; and
the stockpiles of industrial raw materials were built up during the
year, some of which exceeded the usual stocks before the revolt. In
1958, Hungarian officials stated that stocks of some kinds of coal had
become too high for convenience and efficiency.
2. Balance of Trade.
The substantial excess of imports over exports in 1957 was,
financed mainly out of long-term loans from the Soviet Bloc which, ex-
clusive of the December loan from the USSR, totaled 1.2 billion rubles
($300 million at the official exchange rate). (See Table 9*). Total
imports in 1957 were 43 percent higher than in 1956 and 24 percent
higher than in 1955. Total exports were about the same as in 1956
but 18 percent lower than in 1955.
the plan for foreign trade in 1958 aims to eliminate the
foreign trade deficit. In comparison with 1957, exports are to rise
by 22 percent and. imports fall by about 12.5 percent. This plan, if
met in respect to both imports and exports, will eliminate the 2-bil-
- lion-forint deficit and bring foreign trade into balance in 1958. .
Those areas where deficits occurred in 1957 are the most likely candi-
dates for adjustment in 1958, but the effort to bring trade into bal-
ance may entail a change in the geographic pattern of trade.
In 1955 and 1956, there was a substantial increase in Hun-
gary's trade with non-Bloc countries (see Table 7**), and in 1956, for
the first time since the Communists took Over the Hungarian government,
trade with non-Bloc countries showed a slightly favorable balance (in
foreign exchange forints). This was accomplished not only by further
increasing, exports tO non-Bloc countries but also by cutting down im-
ports from the high level reached in 1955. Such an effort to cut dotirn
imports from non-Bloc countries may deny Hungary needed materials that
the Bloc cannot supply and will certainly make it more dependent on
the Bloc. By 1957, both import and export trade with the non-Bloc
countries had declined considerably from the 1955 level but atm showed
a small export surplus. The trade deficit was concentrated in the
Soviet Bloc, where it was covered by long-term loans from each of the
Bloc countries. Within the Bloc, imports exceeded exports for every
country except China, but the really heavy deficit occurred in trade
with the uspe. This supports the official statement that the USSR
carried the major burden of supplying Hungary during the post-revolt
period. (See Table. 7 for trade by country in 1957.**)
* P. 29, below.
** Table 7 follows on p. 26.
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Table 7
Hungarian Trade with the SoViet Bloc and with Non-Bloc Countries
1955-57
Million Foreign Trade Forints
1955
1956
1957
Surplus
?
Surplus
Surplus
Or
or
or
Country .
Imports
Exports LI/
Deficit
Imports
Exports h/
Deficit
Imports
Exports h/
Deficit
'Bulgaria
120.0
102.6
? -17.4
142.2
68.4
-73.8
123.0
70.4
-52.6
Czechoslovakia
660.8
928.1
+267.3
647.6
734.4
+86.8
927.5
880.3
-47.2
East Germany
580.8
762.4
+181.6
520.4
451.1
-69.3
801.1
578.3
-222.8
Poland
Rumania
312.7
218.5
374.7
227.6
+62.9
, +9.1
275.1
151.3
266.2
142.4
-8.9
-8.9
402.2
196.3
251.7
142.0
-150.5
-54.3
- Subtotal
1,892.8
2,395.4
+502.6
1,736.6
1,662.5
-74.1
2,450.1
1,922.7
-527.4
USSR
1,163.7
1,794.9
-631.2
1,261.2
1,417.9
+156.7
2,769.0
1,254.0
-1,515.0
Communist China
340.5
428.4
+87.9
334.5
364.7
+30.2
324.6
348.9
+24.3
Total Bloc
3,397.0
4,618.7
+1,221.7
3,332.1
3,445.1
+112.8
5,543.7
3,522.6
-2,018.1
Total Non-Bloc
2,877.0
2,529.2
-347.8
2,140.3
2,363.9
+223.6
2,257.6
2,306.2
+48.6
Grand total
6,274.0
7,147.9
+873.9
2,472.6
2,809.0
+336.4
7,801.1
5,831.8
-1,969.5
a. Li/
b. Including reexports.
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3. Source of Raw Materials and Change in the Commodity Corn-
position of Trade.
The recent trade agreement with the USSR was reported by
the Minister of Foreign Trade to cover a list of 60 basic materials to
be imported and 60 to be exported. It was said to cover 100 percent of
Hungary's imports of iron ore, ferroalloys, and oil and 90 percent of
its Imports of pig iron as well as 50 to 80 percent of its requirements
for imported metallurgical coke, pit props, timber, cellulose, and non-
ferrous metals. For consumer goods Hungary mould rely less heavily on
the USSR but would obtain from that source 15 percent of its .import re-
quirements for refrigerators, washing machines, polishers, vacuum. '
cleaners, motorcycles, watches, and the like. More than 90 percent of
the articles to be imported from the USSR are raw materials and semi-
finished articles, and roughly 4o percent of Hungary's import require-
ments for industrial materials will be covered'by imports from the USSR.
As the general level of Hungarian imports is to be reduced from the 1957
level by 12.5 percent, the value will stand about 10 percent above the
1956 level. 'Imports from the USSR, however, reportedly will be 75 per-
cent higher than in 1956. This would indicate that the USSR is taking
over, at least temporarily, the supplying of Hungarian industry to a
much greater extent than before therevolt. Exports in 1958 will equal
.the level of 1955.
The composition of Hungarian foreign trade changed consider-
ably in 1957, ad a result of the revolt. The export of production ma-
chinery increased in proportion to other components of the export total,
and exports of foodstuffs and industrial consumption goods declined. On
the other hand; imports of machinery declined relatively and foodstuffs
and industrial consumer goods increased, as shown in the percentage
distribution of Hungarian trade (see Table 8*). These changes appear
to be impermanent, and the new pattern probably will be reversed in
1958.
4. Loans from the SoViet Bloc.
Even before the revolt the USSR had extended loans of 60 mil-
lion rubles in goods credits and ho million rubies in convertible ex-
Change to meet a growing emergency in the Hungarian supply situation in
1956 in addition to a commodity loan of 25 million rubles to be drawn
upon in 1957. After the restoration of the Communist government. in
November 1956, long-term loans were granted to Hungary by every member
of the Sino-Soviet Bloc and Yugoslavia. Goods credits made in 1957
atounteCto 805 million rubles with 300 million additional rubles of
investment credits to start in 1958. This brought the grand total of
* Table 8 follows on p. 27.
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Table 8
Percentage Distribution of Hungarian Trade, by Class of Product a/
1955-57
Percent
Export
Import
Class of Product
1222_
1956
1957
1955
1956
1957
Machines for the purpose
of production
33.3
33.4
38.9
13.3
13.9
11.5
Fuels and Materials
20.8
21.1
21.0
70.8
73.6
69.3
Live animals ,
3.3
5.9
4.7
0
0
0.1
Foodstuffs
24.7
22:5
20.8
12.6
8.1
11.6
Industrial consumption
goods
17.9
17.1
14.6
3.3
4.4
7.5
.Total
100.0
100.0
100.0
100.0
100.0
100.0
goods and equipment credits,. including those extended before the re-
volt, to 1,190 million _rubles (approximately $300 million). (See .
Table 9.*) Loans of free currency from the USSR and Communist China,
including the 4o million rubles extended 'In 1956) totaled 340 million
rubles. Revenue from these foreign loans was carried in the 1957 Hun-
garian state budget at 4.3 billion internal forints, about 8 percent
of the entire budget.
Of the total loans to Hungary, the USSR supplied 935
million rubles in goods and 240 million rubles in free currency.
The USSR also canceled 340.8 million rubles of debt owed by Hungary,
principally on account of the purchase in 1954 of Soviet interest
in the joint companies; and in April 1957 the USSR made a reimburse-
ment of 80 million to 90 million rubles to Hungary as a result of a
joint reexamination of payments since 1950 for transportation and
travel charges.
Repayment of the principal Soviet loan will start in
1961 and run for 10 years, and the periods of repayment to other
members of the Bloc start even earlier. Interest is fixed at 2 per-
cent. Even if equilibrium of foreign trade should be attained
* Table 9 follows on p. 29.
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Table 9
Long-Term Loans to Hungary by Other Soviet Bloc Countries
1956 and 1957
Million Rubles
Country
?
Date .
Total Leans
Goods
and EquipMent
Free Currency
Total Loans,
(Million US $) ai
Period -
of
Repayment
USSR
October 1956
100 IV
.60
40
25
1960-65
1956
25 2/
25
o
6
1961-70
March 1957
750 2/
550
200
187
1961-70
December 1957
300 2/
300
. o
75
1959-68 .
Subtotal
?
1,175
21/
240
al
. Communist China' b
100
b
100
25
1960-69
Czechoslovakia b
100
100
0
25
1960-67
East German,y b
60
60
o
15
1957-65
-Poland121
4o
o
10
1959-62
-Rumania hi
.4o
40
? 4o
o
10
N.A.
Bulgaria 11/
H.7
7
o
2
N.A.
Yugoslavia 12/
'8
8
0
. 2
N.A.
,
Total: '
1,530
1,190

a. Converted at the official rate of-4 rubles to US $1.
b. 2_2/ .
c. Speci.fically ? de signated f.or. capital investment,. principal I y industrial equipment.
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during the year 1958, which appears to be barely possible, the scheduled
debt repayments may create serious difficulties after 1960 when annual
debt payments reach a maximum. The announced goal to increase exports
.by.22 percent and reduce imports by 12.5 percent, if achieved, will
serve to eliminate the deficit for the year 1958, but exports to the
Soviet Bloc must be expanded by another 15 to 25 percent by 1961 to
meet requirements for debt service and repayments.
C. Capital Investment.
1. Rate.
The planned rate of capital investment was lower in 1957
than it had been since long-term economic planning started. The actual
Investment has somewhat exceeded the 8.2 billion forints planned for
1957. Investment was reduced radically in 1954 in accordance with the
policies prescribed by the "new course" and has never been as high as
the 1953 total (16.8 billion forints) since that time. With the start
of the Second Five Year Plan in 1956, however, a higher level of in-
vestment was planned. It was .expected that it would be supported by
a higher national income. As officislly calculated, the national in-
come of 1955 was 94,291 billion turrent forints and in 1956 was expected
to be about 97 billion forints. Planned investment was to reach 12.8
billion in 1956) or about 13 percent of the national income -- a rate
which appeared moderate to Communist planners. The revolt prevented
both national income and investment from reaching planned proportions
in 1956, but the percentage of national income invested in that year
appears to have been nearly 14 percent (see Table 10*). The planned
investment for 1957 was the lowest in many years -- a total of only
8.2 billion forints. A part of this sum was supplied by the 4.3 bil-
lion forints available from loans extended by the USSR and other mem-
bers of the Bloc. Preliminary reports indicate an overfulfillment of
the investment plan by 20 percent. The rate of completion of investment
projects was slower in 1957 than at any time since 1953. By the end Of
the third quarter the value of incomplete investment projects totaled
13.7 billion forints and had increased by 18 percent during the first
9 months of 1957.
2. Distribution.
More than 40 percent of the investment sum in Hungary for 1957
was allocated to.housing and communal projects (education, health, and
welfare). (See Table 11.*) The unusually high percentage for housing
(30.5 percent) was used, in part, to repair the damage of the revolt and
* Table 10 follows on p. 31.
** Table 11 follows on p. 33.
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Table 10
Gross Capital Investment in Hungary
1953-58
Current Prices
Year
Total as Percent
Total of National Income
(Billion Forints) (Current Prices)
1953
1954
16.8 2./
11.8 E./
28.5
13.8
1955
11.2IS
11.9
1956
11.6 1)./
14.1
1957
9.8 2/
lo.4
1958 (Original plan)
9.5 sli
9.7
1958 (August plan)
11.3 (1./
11.5
to renovate other housing which had fallen into disrepair. Neither the
reduced allocation for investment nor its unusual pattern of distribu-
tion could be considered a criterion of future policy, as it was an
emergency measure.
The industrial choices of Hungarian planners are revealed
by :their selection of investment priorities in the plan for 1958-60. -
Industry as a whole will receive about the same proportion of invest- .
ment as it did in the First Fife Year Plan -- about 44 percent. Within.
the 14.3 billion forints to be invested in industry, however, the per-
centage for electric power development will be more than twice as great,
although the percentage for the machine industry is cut nearly in half
and the allocation for metallurgy is only about 4o percent of that for
the First Five Year Plan. Comparative percentages are as follows 2Y:
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Sector
1950-54
(Percent)
1958-60
(Percent)
Heavy industry
of which:
92.2
90.3
Machine industry
22.8
11.8
Metallurgy
20.4
7.8
Electric power
15.8
30.5
Consumer industries
7.8
Total industrial investment
100.0
100.0
The industrial fields in which Hungary expects to invest the
Soviet capital loan and all that can be spared from its own budget are
those which will furnish export goods or reduce imports of raw materials.
Labor-intensive industries in which Hungary already has some competence
and for which markets are already developed are to receive particular
emphasis. In addition to finished products for export, Hungary plans
further development of domestic raw and semifabricated materials to be
used by industry. The export products to be developed include tele-
communications equipment, television sets, precision instruments, and
pharmaceuticals; all of which require relatively much labor and little
material. The technology of these industries is to be modernized, but
the immediate planned investment is small. The largest single invest-
ments of this type will be an enlargement of the Beloiannis Telecommu-
nications Factory (100 million forints) and new equipment for instrument
factories at Esztergom (20 million forints). The Mavag Factory will
receive 100 Million forints for investment in its dieselization program
and will terminate its production of steam locomotives. Present pro-
duction of diesel engines, traction engines,- and motor trains will be
multiplied. For the development of basic industrial materials, the in-
stallation of hot and cold rolling mills at the Danube Iron Works is
planned,- and the allocations in 1958 will include the continuous hot
sheet and strip mill. It is claimed, also, that the modernization of
the oil extraction, building materials, textile, paper, foundry, and
chemical industries will be aided by the USSR. Considerable sums will
be spent in 1958 on the earliest possible completion of the experi-
mental atomic reactor received from the USSR.
The 1958 allocation to investment, finally set at 11.3 bil-
lion forints, is about the same as in 1955 and constitutes 11.5 percent
of the expected national income. As the first year in the new Three
Year Plan (1958-60), the'1958 plan inaugurates a return to a budgeted
investment higher than in 1957 but still in conformity with a policy of
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Table 11
? Percentage Distribution of Hungarian State Capital Investment, by Sector
Selected Periods, 1950-60
Percent
Distribution Si
1950-54
1957
1958
1958-60
Sector
Plan
1955 a/
1956 Si
Plan EV
Plan 12/
Plan Si
Coal mining
8.7
10.4
11.0
12.5
N.A.
N.A.
Metallurgy
8.3
y.5
4.9
3.1
N.A.
3.4
Electric power
6.4
7.2
9.3
9.1
N.A.
13.6
Chemical industry
5.4
5.5
5-4
4.9
N.A.
N.A.
Building materials
2.7
1.6
2.2
1.8
N.A.
N.A.
Machine industry
9.3
5.2
6.6
4.5
N.A.
5.2
Total heavy industry
40.8
3.1221.
3921
31a
N.A.
311
Light industry
1.8
3.5
3.5
2.5
LA.
N.A.
Fool industry
1.6
4.0
3.4
1.7
N.A.
N.A.
Total consumption industry
La.
Ei
Li
42
N.A.
al
Total industry
44.2
41.9_
46.1
40.1
48.
44.1
Building industry
2.6
0.8
0.9
0.5
o
o
Agriculture
13.8
23.8
17.1
8.6
13.8
11.6
Transport and communications
12.7
8.5
9.9
6.9
10.6
12.5
Trade
2.5
3.2
2.7
2.3
o
o
Housing .
5.8
10.3
12.4
30.5
26.6
12.5
Communal projects
9.1
10.5
9.3
11.0
o
. o
Miscellaneous
9.3
1.0
1.4
0.1
o .
19-3
Grand total q/
100.0
100.0
100.0
100.0
100.0
100.0
a.27/1
b.
c.
d. Totals are derived from unrounded data and may not agree with the sum of the rounded components.
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moderation. The investment loan from the USSR will amount to an addi-
tional 1.2 billion foreign-exchange forints to be spread over the 3
years of the plan. During the entire 37year period the investment of
the state will total 32 billion forints, or an average of 10.7 billion
forints a year. It is estimated that other sources of investment will
bring the 5-year total for 1956-60 to 54 billion forints, compared with
an investment of 67 billion forints in the course of the First Five
Year Plan. The total state investment during the 3-year plan will amount
to only about 12 percent of the anticipated national income for 1958-60
in contrast to the 20 to 25 percent invested during the First Five Year
Plan. The goal for 1958 discussed in connection with the Three Year
Plan announcement in June 1958 appears to be an increase over the goal
originally announced, which was only 9.4 billion forints. Out of the
total of 11.4 billion forints, 3.6 billion will go for replacement and
3.4 billion for social investment, leaving only 4.4 billion for new
investment in the means of production.
State investment for the new Three Year Plan is allocated
in such a manner as to favor housing at the expense of agriculture and
social investment, although it is still an inadequate amount for that
purpose. While the percentages for industry and for transport and com-
munications are about the same as in the First Five Year Plan, the per-
centage going to agriculture is lower and that to housing is higher, as
shown in the following tabulation:
Sector
First Five
Year Plan,
' (Percent)
Draft Three
Year Plan
(Percent)
Industry
44.2
44.1
Agriculture
13.8
11.6
Transport and communications
12.7
12.5
Housing
5.8
12.5
Other
23.5
19.3
Total state investment
100.0
100.0
The agricultural investment plan calls for larger sums for long-term
loans to the producer cooperatives. The lower, state allocation to
agriculture, however, makes necessary the maintenance of farm income,
especially in the private sector, sufficiently high to furnish the in-
vestment capital necessary to keep agricultural output high. It is
planned that the income of the rural population will increase by 4 to
5 percent during the 3-year period.
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3. Maintenance. .
Investment plans are complicated by several factors. In
the first place) most of the projected major industrial investments will
not affect the national income before 1960. In the meantime, mainten-
ance of the. present rate of personal consumption is considered a nec-
essary incentive in order to maintain the present rate of production.,
particularly in agriculture, where compulsory quotas have been abolished.
For this reason the, rate of investment from Hungary's own national in-
come cannot be increased greatly at present. Including the planned
state investment of 32 billion forints 1' Or 1958-60, the total state in-
vestment for the entire period 1956-60 amounts to 67 percent Of the in-
vestment fund of 78 billion forints originally projected for that period
and to 12.3 percent of the national income planned for the 5-year period.
An official attack has been launched against prevalent errors in the
management of investment. Investment funds have not been concentrated
on the completion of investments already begun but have been frittered
away by starting many new projects and constantly adding to the backlog
of construction begun but not completed. The backlog of uncompleted
investments is to decline by 2 billion forints in the 3-year period.
This would amount to only about one-seventh of the 1957 total.
?
V. Future Economic Problems.
A. Prevention of Inflation and Achievement of a Balanced Budget.
In 1958; with a 4.3-percent increase in national income, 90 per-
cent of the total income will go to consumption. No assistance, from
foreign credits is expected for consumption purposes and only the Soviet
loan previously mentioned for investment purposes.
The necessity of insuring a supply of goods capable of meeting
the increased purchasing power of the people is recognized in Hungarian
planning. The plan for 1958 estimates a 6.4-percent increase in retail
trade compared with 1957. The state plans to maintain food supplies at
the same relatively high level as in 1957. Agricultural crops are ex-
pected to be considerably below average in 1958, however, so that either
planned exports or home consUmption of food products must be reduced.
Trade in articles of clothing is expected to increase by 10.6 percent
with more synthetic materials and better quality ready-to-wear. The
supply of other consumer articles will be increased by 13.6 percent.
Consumer durables on the market will be increased as far as possible.
For example, 50 'percent more washing machines will be marketed) but
furniture demands will not be fully met. Although the plan provides
for increased retail trade, some steps have also been taken to reduce
further the purchasing power of the people.
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The budget was balanced in 1957 by the revenue from foreign
loans, but a heavy subsidy to the state enterprises was necessary in
order to make up the losses of their unprofitable operations in 1957.
Subsidies to enterprises working at a loss were estimated to be 7.8
billion forints. In 1958, both state revenues and eZpenditures will
be reduced by 5 percent. Revenue from foreign loans, which balanced
the.1957 budget, must be reduced considerably -- perhaps to the 900
million forints already obtained from the USSR for investment pur-
poses. Subsidies designed to cover the domestic losses of the enter-
prises, caused largely by low utilization of capacity, probably will
not be necessary in 1958 as production in most lines is back to nor-
mal. Export subsidies have been necessary for years to make up the
difference between the domestic prices paid by the export agencies and
the prices received in foreign trade converted at the official rate of
exchange. Profits from the excess of domestic over foreign prices on
imports, on the other hand, have been small. Relative foreign and
domestic values, shown in Table 12,* will indicate the size of the net
export subsidy paid in recent years.
State revenues that come directly from the population were some-
what reduced in 1956 and 1957. Some nuisance taxes on the people were
discontinued after the revolt. State loans, which amounted to forced
individual savings, as subscription was obligatory, have been abolished
as a means of obtaining revenue. In early 1958, however, the agricul-
tural taxes were increased for the landowners with larger holdings and
better quality land. This action greatly increased the tax load on in-
dependent farmer's and could amount to a rise of up to 37 percent on
the larger private landowners. A tax on the employment of farm hands,
amounting to 10 percent of the employer's income, is also to be intro-
duced. The new tax rates were raised principally on the larger hold-
ings and those having land of better quality. In addition to supple-
menting the present sources of revenue, these taxes may be designed to
force the more substantial peasants to enter the cooperatives or face
economic ruin. If the peasant income is cut materially, this will
affect agricultural production because the state provides little assis-
tance to agriculture or credit for increased investment outside the
socialized area.
Money wages already have been reduced by tying them to produc-
tion norms, and the price of many consumer goods has been increased.
It has been estimated that about 4o percent of the increase in money
incomes in 1957 was absorbed by price increases. Further price in-
creases would reduce the level of consumption and would contradict
official promises to hold the line on the standard of living. These
moves to reduce real wages and farm income reflect the pressures felt
* Table 12 follows on p. 37.
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Table 12
Hungarian Foreign Trade and Adjustment
Between Hame'and Foreign Trade Prices LI/
1949 and 1954-56
Billion Forints at Current Prices
Home Prices
Foreign
Home Prices Trade Prices Surplus Surplus
Expenditure, Receipts Net Foreign ,
Year Exports hi Imports 2/ Exports Imports on Exports 2 from Imports Trade Subsidy 1/
1949
4.79
4.52
3.29
3.38
1.50
1.14
0.36
1954
0
5.36
5.60
0
0
7.50
1955
20.56
10.81
6.21
. 5.65
14.35
5.16
9.19
1956
18.28
9.19
5.67
5.67
12.61
3.52
9.09
b. Value of exports at domestic prices paid by foreign trade agencies.
c. Value of imports at domestic selling price of foreign trade agencies.
d. Losses of foreign trade agencies on sales of exported goods minus the receipts .on domestic sale of
imports.
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by the regime (1) to prevent inflation, (2) to balance the budget, and
(3) most importantly, to increase exports and decrease imports, thus
bringing trade into balance for 1958. It is also necessary to provide
sufficient capital to reorganize and expand the industries that will
later furnish increased exports.
B. Achievement of a Balance of Trade in 1958.
The plan for 1958 foreign trade envisions a balanced trade with
Imports at about 6,800 million devisa forints and exports at 7,100 mil-
lion devisa forints. This trade would allow.for imports about 8 percent
higher than in 1955 and exports of about the same value as those of that
year. Thus a return to the 1955 conditions of foreign trade would amply
satisfy the balanced foreign trade goal of the plan.
It will be difficult to achieve a foreign trade balance in 1958,
which calls for a 12.5-percent reduction in imports and a 22-percent
increase in exports above 1957 while maintaining the same level of con-
sumption as in 1957. Preliminary data for the first half of 1958 showed
that imports fell by 15 percent and exports rose by 47 percent compared
with the same period of 1957, 31/ indicating a reduction in the trade
deficit for the period compared, from 1,755 million devisa forints in
1957 to about 31 million devisa forints in 1958. In order to meet the
plan for 1958, it will be necessary to reduce imports by 4.6 percent
and increase exports by 5.5 percent in the second half of 1958 from
their respective values in the first half of the year.
C. Requirements for Consumption and Export in 1958.
?
Consumption requirements for 1958 can be measured roughly by the
planned increase in retail trade, which is 6.4 percent above that for
1957 and about 27 percent higher than in 1955. This percentage does not
allow for some increase in retail prices which, in the case of food,
averaged about 2 percent. Export requirements for 1958 will be about
the same as in 1955, and import requirements for industrial raw materials
will be somewhat higher than in 1955 on account of increased industrial
production. It is planned that total industrial production exceed that
of 1955 by about 11 percent.
Final consumption of goods by the population in 1955 was 64.2
billion forints, of which 60.4 billion forints accounted for foodstuffs
and manufactured consumer goods. These items, except for consumption
in kind of agricultural products) usually enter retail trade channels.
The remainder was for rent, heating, and electric current, which are
assumed to have remained constant. Assuming that the increase between
1955 and 1958 in the retail trade is approximately 27 percent as planned,
the current value of consumption in 1958 may be 'estimated to be 80.5
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billion forints.* The value of domestic production must cover this
level of consumption as well as maintaining an average investment level
of 11.4 billion forints. The national income for 1958 is planned to
reach 95.3 billion forints (estimated), in 1954 prices, or somewhat
higher in current prices. Thus the total of planned consumption and
fixed investment, about 92 billion forints, will practically equal the
national income, leaving little margin for (1) additions to working
capital, (2) a possible excess of imports ovenexports, (3) payment of
foreign debts) or (4) other contingencies. So close is the margin of
planning that any production difficulties or overinvestment may force
a reduction in consumption) unless Hungary can obtain some additional
foreign credits. Thus the consumer again would be forced to pay the
price for maintaining simultaneously (1) sufficient exports to balance
foreign trade and (2) the investment level considered essential for
modernizing and integrating the Hungarian industrial structure and for
increasing future production in industry and socialist agriculture.
For 1958, it was planned that farm product exports would be in-
creased by 380 million forints. This was to be done without reducing
the availability of foods at home) and this may be possible because the
stocks rebuilt in 1957 can be drawn down to some extent. Agricultural
production, as a whole, was planned to increase by 4.3 percent above the
very good crop year of 1957, but this expectation is not likely to be
realized. One of the major problems will be to increase the production
of bread grains in sufficient quantity to avoid importation. The area
sown to bread grains in 1957 was 10 percent less than in 1956, but the
yield was 5 percent more.
D. Hungarian Ability to Produce an Export Surplus During the Decade
of the 1960's.
Domestic production in the decade of the 1960's, in addition to
maintaining the domestic consumption level for an increasing population,
must furnish sufficient exports to pay for its own raw materials, for
essential consumer goods not produced in Hungary, and for a balance over
imports sufficient to cover payments on the foreign debt to countries of
the Bloc over the period 1959-70. The largest repayment will be for the
year 1961 -- a total of 180 million rubles, followed by 171 million
rubles in 1962 and progressively smaller payments in the years thereafter
through 1970. This would represent, at its maximum) an annual payment
of 527 million devisa forints, or about 3 times that amount in domestic
forints. ag/ According to the loan agreement) 'payments will be made in
goods usually exported by Hungary, including ships, cranes, railroad
rolling stock, metal-cutting lathes, precision instruments, and other
* Derived as follows: 127 percent of 6o.4 = 76.7 + 3.8 (housing and
Utilities) = 80.5 billion forints (in comparable prices).
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industrial goods as well as some agricultural products. The maximum .
annual payment of 180 million rubles would add 7.4 percent to the exports
nlanned for 1958.
Total industrial production, according to plan, will exceed that
of 1955 by about 29 percent in 1960 rather than by the 47- to 50-percent
Increase envisioned in the Second Five Year Plan, now abandoned. The
A
increase above 1957 for industry as a whole will be 24 percent. 33/ Out-
put in heavy industry will increase by 28 percent, and the light and food
industry will increase 20 percent. Agricultural production is planned
to increase 12 percent by 1960 above the average for 1954-56. There are
few product groups on which Hungary could depend either to diminish im-
ports or to furnish increased exports and thus eliminate the deficit of
2 million devisa forints incurred in 1957. Although the 1958 plan called
for elimination of the imports of bread grains, fodder grain, and fats
and for a decrease, at least from the quantities of former years) in
the import of coal and basic raw materials, it now seems certain that
wheat imports will be required because of a poor grain ctop. Coal im-
ports are down to normal, but reductions for some other materials are
doubtful.
Electric power and the materials industries still have priority
in the plans for the 3 interim years before another Five Year Plan is
launched. The Three Year Plan (1958-60), published in June 1958, 3.1y
included targets for some basic industrial (or agricultural) materials
which for the most part appear very low compared with previous plans
(see Table 13*).
Of the industrial materials to be produced in more abundance,
coal and crude oil will not be exports, except in minor quantities, al-
though some petroleum products such as fuel oil and gasoline are shipped
abroad (see Table 14** for statistics on Hungary's principal exports).
Cement was exported before the revolt, and the quantity of aluminum
metal sold abroad could be tripled if smelters were run at capacity.
Aluminum, ordinarily produced for domestic use and export, was imported
in 1957 for the use of the fabrication plants, but exports of bauxite
and alumina were near normal in 1957. Plans for the future include an
export of rolled steel products amounting to 500 million devise forints
by 1960 in addition to production sufficient to meet home needs; this
surplus, however, probably will be earmarked to pay off the Soviet in-
vestment in the steel mill at Dunapentele. 32/ Installation of the hot
sheet and strip mill will not be complete until 1960. Imports of rolled
steel products increased about 11,000 metric tons in 1957, making up for
a deficiency in production of that amount below the 1955 level. It is***
Table 13 follows on p. 41.
I* Table 14 follows on p. 42.
Text continued on p. 44.
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Table 13
Hungarian Production of Selected Basic Commodities
1955, 1957, and 1960 Plan
Commodity
Unit
Production
1955
1957
1960
(Plan)
Percent
of 1960
Above 1955
. .
Coal
Million metric tons
22.3
21.2
26.6
19
Electric power
Billion kilowatt-hours
5.4
5.4
8.3
?41
Crude oil
Million metric tons
1.6
0.7
1.1
-31
Pig iron
Thousand metric tons
0.855
0.714
1.1
25
Steel
Million, metric tons
1.63-
1.4
1.65
, 1
Alumina
Thousand metric tons
l54
154
200
30
Aluminum
Thousand metric tons
37
26
45
22
Sulfuric acid 2/
Thousand metric -tons
124
120
155
25
Caustic soda-
Thousand metric -tons
11.7 LI
11.5 W
98
I?./
N.A.
Artificial fertilizer si
Thousand metric tons
123
N.A.
424
245
a. Including regenerative material.
b. Without regenerative material.,
c. Nitrogenous and phosphorous.
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Table .14
Hungarian Foreign Trade in Principal Export Products pi
1955-57
?
Product
Unit:
19551956
1957
Imports IV
Exports 12/
Laporte V
Exports Li
ImpOrts Ei Exports 13/
-: '.:Slinflower seed
Thousand metric tons
8
14
3
13
2
10
-, -Husked rice
Thousand metric tons
17
13
25
32
? 29
44
Live slaughter.hogs
t ? / ,
. 'Live slaughter cattle
, Thousand metric tons
Thousand metric tons
0
0
21
18
0
0
27
33
0
o
13
4o
Dressed poultry
-Thousand metric tons
0
17
0
12
0
12
, ?ABMs .
Million
0
a92
o
178
o
101
' Wine
Thousand hectoliters
93
251
ao
270
15
233
Commercial flour
Thousand metric tons
114
10
119
6
,2.0
6
Refined sugar87
Thousand metric tons
96
54
40
33
10
'Ccemercial raw meat 2/
Thousand metric tons
0
24
0
18
0
11
Salami
Metric tons
0
1,512
0
1,776
o
1,668
Sunflower oil
Thousand metric tons
0
23
0
10
0
16
Cooking oil 2/
- Thousand metric tons
0
' 5
o
6
o
3
Commercial butter
Thousand metric tons
0
4
o
5
o
4
c. At least 96 percent of this meat was pork and beef.
d. It is probable that a part of the cooking oil is produced from sunflower oil.
two products does not apply, however, to.the export quantities.
The duplication existing in production between the
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Table 14
Hungarian Foreign Trade in Principal Export Products Ri
1955-57
(Continued)
Product
Unit
1955
1956
1957
Imports 14 &worts II/
Imports 9./
Exports 12/
Imports 12/
Exports IV
Bauxite
Thousand metric tons
0 554
0
376
o
467
Alumina
Thousand metric tons
o 79
0
89
0
90
Aluminum metal
Metric tons
1,596 7,860
204
. 5,280
11,208
1,452
Hot-rolled steel
Thousand metric tons
70 105
58
99
127
88
Cement
Thousand metric tons
0 292
10
190
16
25
Kerosine.
Thousand metric tons
15 30
3
10
Negligible
'
14
Fuel oil
Thousand Metric tons
21 62
22
15
39
101
Gasoline
Thousand metric tons
' 11 15
36
13
29
69
Asphalt
Thousand metric tons
6
o
22
0
50
Steam traction engines (275 horsepower)
Units
3,072
o
2,508
o
2,724
Railroad passenger coaches
Unita
3,036
o
3,384
o
3,396
Auto buses
Units.
0
708
o
780
Dump trucks
Units
2,064
0
1,596
o
2,316
Motorcycles (250 cm3)
Thousand
6.9
o
6.6
o
8.5
Bicycles.
Thousand
74.7
0 ?
30.2
0
46.6
Passenger ships (450 horsepower)
Units
11
o.
10
o
II
Cargo ships (10100 tons)
Units
12
o
10
0
10
Tugs (400 horsepower)
Units
13
0
11
o
10
Harvester combines
Units
1,118
0
1,272
0
616
Center lathes
Units
732
o
804
o
' 924
Milling machines
Units
528
o
576
o
672
Drilling machines
Units
852
o
624
o
912
Superphosphate fertilizer
Thousand metric tons
23
0
26
o
62
Sulfuric acid
Thousand metric tons
20
0
7
o
7
Radio sets
Thousand
69
o
49
o
93
Light bulbs '
Million
20.0
o
18.1
o
25.0
Papaverin, hydrochloride
Kilograms
14,304
0
11,124
o
14,028
Cotton stockings
Million pairs
3,096
o
, 3,744
o
4,284
Cotton cloth
Thousand square meters
105,684
o
90,324
o
60,516
Wool cloth
Thousand square meters
2,520
o.
2,928
o
1,0.90
Shoes (men's, women's, and children's)
Thousand pairs
1,092
0
1,308
o
852
Wheat
Thousand metric tons
326 , 292
185
138
337
Negligible
Rye
.Thousand metric tons
59 , 26
Negligible
41
0
o
Corn
Thousand metric tons
43 118?
4
115
5 .
18
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doubtful that there will be any reduction of rolled steel imports before
the new mill is in operation.
, In-general, the contribution of the raw materials industries in
'Hungary will be toward a reduction of the volume of 1957 imports and not
toward increasing export. This is not true Of food products, which are
traditional Hungarian exports. These include dressed poultry, eggs,
salami, livestock, vegetable oil, wine, fruit, vegetables; paprika and
some sugar, raw meat, and corn. Officials 'claim that more intensive use
of the land will furnish a greater value in agricultural products. At
the same time, however, they expect Hungary to regain its self-suffi-
ciency in bread grain crops as well as to increase agricultural exports.
The Three Year Plan (1958-60) for light industry, according to
the Minister, Mrs. Nagy, calls for an increased delivery of goods to
foreign trade by 1960 of 17 percent above that of 1958. By 1960, pro-
duction in light industry is to increase by 10 percent above 1958, or
20 percent above 1957. Textiles are the chief export of light industry.
Export of textiles, which was generally lower in 1957 than in previous
years, could be increased by 100 percent if production is raised to the
1955 level. It was claimed in 2955, however, that cotton textiles are
uneconomic for export purposes because of the necessity of importing
? practically 100 percent of the cotton fiber, including high-quality
_
fiber from non-Bloc countries. ?Manufacture of synthetic fiber has been
started but is not yet able to furnish a significant part of textile
raw materials. Consumer durables, which are manufactured by heavy in-
dustry, are both imported and exported. Radio sets, light bulbs, bi-
cycles, and motorcycles are exported, but domestically produced house-
, hold equipment -- Such as washing machines, sewing machines, and re-
. frigeratOrS -- are badly needed on the home market.
The principal reliance of Hungary's Communist government for
export materials has been on heavy machinery '-- locomotives, railroad
coaches, buses, trucks, ships and tugs, certain types of machine tools,
and harvester combines. Most of these goods cannot be exported out-
side the Bloc because their design and quality are not sufficiently
competitive. Diesel engines and electric engines will now replace steam
engines for locomotives. Fully equipped factory units and electric'
power station equipment are exported not only within the Bloc but also
to the Near East of Asia. Exports of electrical goods to South American
countries predate World War II and serve to purchase Argentine hides and
other essential materials. Electronic and telecommunications products
are supplied to the Bloc, for both civilian and military purposes.
Present intentions are to modernize this industry, concentrating on
certain electronic products and precision instruments as major export
items, although 'loss of skilled manpower during the revolt deprived the
industry of some of its best technicians. In addition to machinery,
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mechanical equipment, and instruments, Hungary plans to export chemical
products. Aside from pharmaceuticals and petroleum products, however,
Hungary has no surplus of chemicals for export at present. Production'.
of nitrogen will be stepped up in the next few years, but any increase
in production is needed in the manufacture of fertilizer and explosives.
Although Hungary has tried to increase its trade with non-Bloc.
countries through bilateral agreements, it has little chance of selling
in competitive European markets until its products are modernized. In-
vestment funds for expanding and modernizing the export industries are
spread very thin and in 1957 were frittered away by starting many proj-
ects which could not be completed. Present intentions are to control
investment more closely in the future and to concentrate on investment
projects that will yield the quickest returns.
E. Conflict Between Current Economic Policy and Long-Term Communist
Policy.
In spite of efforts to reduce imports by economizing on materials)
by producing more at home, and by utilizing substitutes, Hungary cannot
hope to reduce its import requirements very much below the 1955-56 level.
Its ability to produce salable exports is likewise limited, as follows:
(1) by the degree to which intensive cultivation of the land can be in-
troduced and encouraged so as to result in greater production of export
commodities; (2) by the ability of the country to develop industrial
specialties which can be econdmically produced; (3) by the utilization
of labor skills and the economies of mass production rather than the use
of a greater quantity of material and more primitive methods of produc-
tion; and (4) by the ability to replace obsolete machinery and equipment
and thus to organize a higher quality of production. The task of organ-
izing the economy for efficient production would be difficult, even if
the planners followed rational lines of policy. There is a constant
tendency in the Satellites, however, to shape economic policy to
suit political ends and to revert to policies that have proved obstruc-
tive in the past.
In agriculture the private farms are well suited to intensive
forms of agriculture such as the growing of fruits and vegetables and
the raising of livestock, but the pressure on peasant owners to join
collective farms, the frequent revision of landholdings, and the gross
discrimination in taxation and other matters have constantly hampered
the progress of the more substantial farm owners. The private peasants
with the best quality land and the larger holdingt are taxed so heavily
that they are unable to make a good income, and little investment can
be expected from them.
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Although some progress has been claimed in the reorganization
of industrial production in certain industries, this undertaking is
given lower priority than the completion of the integrated iron and
steel combine at Dunapentele. Heavy industry and, within heavy in-
dustry, the materials industries, are favored in the investment allo-
cations so that plans for the advanced processing industties are de-
layed. Products exported to the USSR likewise are given priority over
products destined for Western markets. Replacement of obsolete ma-
chinery and equipment is curtailed for want of adequate investment
funds. Moreover, the vested interests among the ministries have been
diverting the scarce investment funds to new construction rather than
to completion of projects already under way, and new construction has
long been favored over replacement of obsolete equipment.
These preconceived ideas, long a part of Communist economic
doctrine, may prevent the reorganization of industry as well as agri-
culture on a more rational basis. If the regime must choose between
meeting export commitments and improving, or even conserving, the con-
sumer welfare during the next few years, the choice inevitably will
favor the delivery, of exports, and that choice will be self-defeating
-because both objectives must be attained in order to have a productive
working force and a.supply of materials for industry.
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STAT
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